Forms of Business Organization

Most countries allow you to run a business in at least three different ways:

• as a sole trader (especially in British English) or sole proprietorship (in American English);

• as a partnership;

• as a company (British English) / corporation (especially American English).

A sole trader (sole proprietorship) is a firm with a single owner – a proprietor – who has unlimited liability. Unlimited liability is the legal responsibility for all the debts of a firm. Sole proprietorships are the most numerous kind of business organization, but most are very small. They are popular because they are the easi­est – and the least costly – to organize.

Partnerships are the second most common type of business organization. Most law firms and accounting firms are partnerships. A partnership is a firm with two or more owners who have unlimited liability. Partners bring additional funds to a proprietorship. They can also bring fresh ideas and talents to busi­ness organizations.

Corporations are the best known types of business organizations, though they are not the most common. A corporation is a business organiza­tion created under a government charter. Ownership of a corporation is represented by shares of stock, so corporate owners are known as stockholders. Corporate stockholders have limited liability, which means that they have legal liability only for the value of their initial investment. IBM, Exxon Mobil, and Sony are all examples of corporations. Many corporations, including these three, are multinational giants.

A scope of business activity (its turnover and the headcount) is the major criterion for distinguishing small, medium-sized and big business.

A small business is a business that is independently owned and operated, with a small number of employees and relatively low volume of sales. The legal definition of “small” often varies by country and industry, but is generally under 100 employees in the United States and under 50 employees in the European Union.

Small businesses are common in many countries, depending on the economic system in operation. Small businesses are normally partnerships, or sole proprietorships. Typical examples include: convenience stores, other small shops (such as a bakery or delicatessen), hairdressers, tradesmen, lawyers, accountants, restaurants, guest houses, photographers, small-scale manufacturing etc. Small businesses are usually not dominant in their field of operation, though they are the major job providers in most economies.

The smallest businesses, often located in private homes, are called microbusinesses (term used by international organizations such as the World Bank and the International Finance Corporation) or Soho’s. The term “mom and pop business” is a common colloquial expression for a single-family operated business with few (or no) employees other than the owners.

SMB is an abbreviation for small and medium-size business, sometimes seen as small and mid-size business. The definition of SMB by the number of employees is generally under 500 in the U.S. and 250 for the European Union.

Big Business is a term used to describe large corporations, in either an individual or collective sense. The term first came into use in a symbolic sense subsequent to the American Civil War, particularly after 1880.

Organizations that fall into the category of “big business” include Exxon Mobil, Wal-Mart, Google, Microsoft, General Motors, Citigroup, Arcelor Mittal and others.

The social consequences of the concentration of economic power in the hands of those persons controlling “Big Business” has been a constant concern both of economists and of politicians since the end of the 19^th century. Various attempts have been made to investigate the effects of “bigness” upon labour, consumers and investors, as well as upon prices and competition.